By JAD MOUAWAD

Published: December 13, 2005

The ultimate oil state is seeking to shift its economy away from oil.

Saudi Arabia may be experiencing its third oil boom in three decades but it is also undergoing an economic revolution that its leaders hope will finally insulate it from the oil producer's curse: the next price collapse.

The Saudi kingdom remains the 600-pound gorilla of the global oil market. Given its vast reserves, Saudi Arabia can keep pumping oil for the next 70 years. Oil, along with Islam's holy cities, Mecca and Medina, provides the country's rulers with wealth, power and influence. Oil sales account for 40 percent of the economy and about 90 percent of government revenue. But that reliance on a volatile commodity -- with big booms but also big busts -- is also a problem that the royal family is determined to overcome.

The nation's leaders, of course, have made similar vows before to translate their vast oil wealth into a more diversified economy. Will this time really be different?

There are signs that it may be. Unnoticed by many outsiders, the Saudi private sector has flourished in recent years, thanks to structural changes started by King Abdullah in the late 1990's when he was crown prince and oil prices were at $10 a barrel.

''There's a gold rush in Saudi Arabia right now,'' said Mohammed al-Sheikh, a Saudi lawyer associated with the White & Case law firm here in Riyadh, the capital. ''You can feel it everywhere in the economy. Everyone wants to invest here.''

Driven by a construction boom that is already replacing many of the buildings thrown up in the 1970's, sprawling shopping malls, paved with white marble and featuring Gucci stores and Starbucks coffee shops, have become fixtures of the landscape in Riyadh, Khobar and Jeddah.

Analysts at the Samba Financial Group in Riyadh expect the economy to grow by 6.5 percent this year thanks to record oil prices, which have helped fuel the third consecutive year of rapid expansion. But the private sector, which also stands apart from the state-run oil industry, has outpaced the rest of the economy for 7 of the last 11 years and is expected to grow 7.4 percent this year.

''The diversification of our national income and our economy away from oil is key to our well being,'' said Abdullah Alireza, a minister without portfolio and a member of the Supreme Economic Council. ''It's absolutely key.''

The Saudi stock market has become one of the world's top performers, and growth in its market value for this year is about twice as large as the country's oil revenues.

Saudi Arabia is also opening to real competition. It joined the World Trade Organization on Sunday after 12 years of negotiations, a move expected to give a powerful push to the country's private sector.

''It's going to be a long road to bring ourselves up to international standards,'' said Fouad al-Humoud, a local businessman, sitting in his office in the center of this sprawling city, at the end of a long strip of neon-lighted stores. ''But we have a tsunami of opportunities here. No one wants to be left on the back seat.''

The government has relaxed foreign ownership laws, loosened credit rules, liberalized the telecommunications market, passed a new capital markets law and created regulatory agencies to oversee these changes.

''That's a structural shift,'' said Brad Bourland, chief economist of Samba. ''In terms of reforms, this is where the rubber meets the road, because it creates a regulatory environment where a private economy can operate.''

Unlike in the oil booms of the past, Saudi companies are the main beneficiaries of today's bonanza. Major local industries, like petrochemicals, mining, plastics or fertilizers, have been created from scratch. Sabic, the Saudi Basic Industries Corporation, is now the largest nonoil company in the Middle East; Ma'aden, the government-owned mining company, is not far behind.

''They feel the need to develop industries that create added value and jobs and develop fields where they have a natural advantage,'' said Jean-Fran?s Seznec, a professor at the Middle East Institute of Columbia University.

Abdallah Dabbagh, the president of Ma'aden, told a group of reporters on a recent visit here that within 10 to 15 years he expected Saudi Arabia to dominate the fertilizer business. ''The world will depend on Saudi Arabia for its food the same way it depends on its energy today,'' he said.

That's an exaggeration, but Saleh al-Husseini, a member of the Majlis al-Shura, a consultative assembly appointed by the king, claims that the current boom is more sustainable than past oil-led expansions.

''Saudi businessmen have gained a huge experience since the first oil boom,'' Mr. Husseini said.

Like most oil producers, Saudi Arabia has found that oil was as much a curse as a blessing. In the 1970's, the state modernized rapidly; built roads, schools, hospitals and universities; and gave safe government jobs to its people. But when energy prices collapsed, the state found it could not pay all its bills.

''They have learned the lessons from the first and the second oil booms,'' said El-Mostafa Benlamlih, the resident coordinator for the United Nations here. ''These had lots of redistribution, lots of consumption, lots of public sector recruitment and lots of waste. I don't think they'll go down that road anymore.''